Smart specialisation – magic key to economic success? How Estonia uses the key? Katre Eljas-Taal Technopolis Group 22 November 2013 Skopje

The challenge From sub-contractor country to leading high technology implementation From innovation follower to innovation leader From low cost country to high value added use of resources From R&D and higher education backstage to international stage From low productivity to complicated value chains FROM RECOURSE BASED TO KNOWLEDGE BASED ECONOMY 2

Scene setting 1.The initiative to draft a smart specialisation strategy came from the Ministry of Education and Research (responsible for R&D strategy) and the Ministry of Economic Affairs and Communications (responsible for Entrepreneurship Growth strategy) 2.During key background studies were provided: Estonian socio-economic situation Global trends 2020 Mapping of Estonian development needs ERAC peer review of Estonian R&DI system, Most exporting sectors: wood, metal, food, electronics. ECONOMICALLY PERFECT TIMING TO CHANGE STRATEGY 3

Updating national economic sectors I Use of existing capacity: Updating traditional economic sectors vs Moving to new sectors related to existing ones II Developing new capacities: Importing new high value added sectors or business functions from abroad vs Developing new economic sectors from scratch Source: Universities, Innovation, and the Competitiveness of Local Economies”, Technology Review 214/2007, TEKES; Engaging high added value and R&DI foreign investments in Estonian innovation policy,

Four steps of drafting smart specialisation strategy Quantitative analyses (IIIq 2012) – gathering statistical information Qualitative analyses (IVq 2012) – adding aspects of future trends, possible areas of collaboration between research and business, potential of research and higher education, existing human resources, identifying growth areas Bottlenecks of smart specialisation (IIq 2013) – analysing the bottlenecks of selected growth areas and presenting measures to overcome Management structure (IVq 2013) – offering possible management structure to implement the smart specialisation strategy 5

Step I – Quantitative analyse (IIIq 2012) The aim of quantitative analyse was to map current strengths of Estonian economy and model recent trends The precondition was that growth areas would rise from existing economic sectors and recent trends do not appear to be random In the result of quantitative analyse the growth areas were selected on the basis of: Ability to create added value The biggest export volumes Foreign trade volumes The number of employees In addition the aspects taken into account: Costs on R&D The number of researchers/employees in R&D The level of technology complexity (high/low) 6

Step II – Qualitative analyse (IVq 2012) The aim was to identify the economic areas with the best outlook Focuses on future trends in economy and possible areas of cooperation between business and academia through: Potential of entrepreneurship Potential of research Extent of economic impact and probability of its realisation the sectors were analysed as a matrix looking at the horizontal and vertical sectors and their crossing points Bottom-up approach: Interviews and focus groups with entrepreneurs, researchers and professional associations were provided Conference for entrepreneurs and researchers to hear their opinions In the result three the most potential growth areas were identified 7

Step III – Bottlenecks of smart specialisation (IIq 2013) The aim was to identify possible bottlenecks of the selected growth areas, of which the added value for innovation development could be the highest, if to be removed Main bottlenecks/opportunities: Fragmented R&D supporting measure, more cooperation between clusters/Competence Centres Insufficient funding possibilities for R&D intensive young entreprises Insufficiently attractive environment for foreign talents Increase potential of R&D through international cooperation Increase the level of universities’ R&D intensive spin-off’s 8

Step IV – Management structure (IVq 2013) The aim is to analyse existing management structure and to propose a new one/update the existing one in order to effectively implement the smart specialisation strategy As the growth areas are interministerial – more than one ministry has interest/activities – they need to be coordinated horisontally There is a need for a monitoring body 9

Two main principles in selection of the growth areas What are the sectors and activities, where enterprises can using R&D be globally competitive What are the sectors and activities, where using R&D the country can use existing entrepreneurship and resources more effectively 10

Growth area I 1. Information and communications technology (ICT) horizontally via other sectors. Sub-sectors: a) use of ICT in industry (incl. automation and robotics); b) cyber security; c) software development. Rationale behind: Highly developed in Estonia (e-public services, e-banking aso) bigger opportunities await in the application of the technology in other sectors Highest potential for growth 11

Growth area II 2. Health technology and services. Demand for health services is growing globally as the population ages. Estonia has the greatest potential in: a) biotechnology (a strong scientific basis); b) e-medicine (use of IT for the development of medical services and products). Rationale behind: high peaks/research is very strong in Estonia demand for health services is growing globally as the population is aging Research and industry cooperation is seen as great growth potential 12

Growth Area III 3. Generating more value from resources. The increasing global population is likely to increase the need to use resources more efficiently. Estonia’s potential in this area is greatest in: a) material science and industry; b) development of the ‘smart house’ concept (IT solutions and more efficient construction of houses (passive house)); c) food that supports health; d) chemical industry Rationale behind: Contains a lot of ‘green economy’ The increasing population of the world increases the need to use resources more efficiently 13

Implementation: 1) through R&D strategy Developing human capacity: Ensuring high level and diverse of research; Increasing social and economic benefits of R&D; R&D as booster for change of economic structure from smart specialisation; Increasing Estonian input and visibility in international R&D and innovation collaboration. 14

Implementation: 2) through Entrepreneurship Growth strategy Two focuses: Growth areas and high impact target groups: Drivers (companies with export turnover more than €30m) Key clients (companies with export turnover more than €1.25m, value added more than €25,000/person) Growth enterprises (companies with sales more than €200,000, growth 20+ % annually) 15

How it will be implemented in reality? Growth areas is a link between two strategies – in both strategies activities focused on economic growth; Structural support will be channeled to companies performing either in growth areas or present potential for growth; Public sector as client for research – demand side innovation policies Management system – one responsible body for implementation of smart specialisation strategy, systematic monitoring and feedback; IF combined with foreign direct investments, can be real boost for economy (especially proactive communication, marketing, higher value added FDI) 16

Main concerns The effect appears on the level of ACTIVITIES’, not SECTORS On the strategic level Estonia DOES RIGHT THINGS, but on the tactical level… Not clear how the resources in favor of the economy are used in the most effective way How to increase synergy with neighbouring countries (ICT, biotechnology) RISK: current strength is bottom-up approach, which can be eliminated by ‘doing as usual’ – being implemented by ‘programme based’ – focus will be lost, insufficient cooperation between ministries Whether there is enough will to change behavior, thinking and economic structure… 17

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